Managed competition and consumer price sensitivity in social health insurance

Abstract

This paper examines whether the introduction of managed competition in Dutch social health insurance has resulted in effective price competition among insurance funds. We find evidence of limited price competition, which may be caused by low consumer price sensitivity. Using aggregate panel data from all insurance funds over the period 1996–1998, estimated premium elasticities of market share are −0.3 for compulsory coverage and −0.8 for supplementary coverage. These elasticities are much smaller than in managed competition settings in US group insurance. This may be explained by differences in switching experience and higher search costs associated with individual insurance.